The traditional market system faces a lot of challenges which can be overcome by changing the stock market with blockchain and hence help the financial sector perform more efficiently.
Investing funds in the stock market is one of the key ways to raise money. According to the Stock Market Investing Statistics, 52% of Americans have their money invested in stocks, which highlights that more than half of the American population invest their money in stocks.
With the traditional stock market systems, the stock market investors have to go through a tiring process, such as dealing with go-betweens, customs clearance, to name a few. The problems that the traditional system faces can be addressed effectively with advanced technology like blockchain. With its incredible features, blockchain can entirely revamp the stock market system.
Various industries, including retail, manufacturing, medical, financial, are reaping benefits from blockchain. The entire role of participants, the process of investing funds in the stock market will change with blockchain in a right way.
The old model for the stock market industry has multiple issues that must be resolved at the earliest. The points below highlight the problems associated with traditional market systems.
- Old market systems stores all the digital assets at a single location and have a centralized ledger. If any data is corrupted, the entire data is lost.
- Old systems are often tedious to upgrade.
- A centralized database is expensive since it requires mainframes. Moreover, a lot of money is wasted to repair the traditional methods, if the need be.
- In the traditional way, intermediaries are required for investing in stocks. The participants have to spend a lot of their money for the stock investment processes.
- A traditional system lacks transparency, where one participant is unable to view the decisions of other participants, resulting in information asymmetry.
The crisis caused by centralized database approach and lack of transparency has left significant enterprise like Lehman’s Brothers devastated.
J. Christopher Giancarlo, Commissioner of Commodity Futures Trading Commission said:
“If an accurate [blockchain] record of all of Lehman’s transactions had been available in 2008, then Lehman’s prudential regulators could have used data mining tools, smart contracts, and other analytical applications to recognize anomalies. Regulators could have taken an action sooner on Lehman’s deteriorating creditworthiness.”
Blockchain can offer decentralized database, which solves all issues associated with the old systems, instead of probing data with a centralized database. The transactions work as follows:
- Imagine, if an investor decides to make a trade
- Blockchain contains a set of growing nodes, termed as blocks.
- The digital transactions are performed with a blockchain network
- The blockchain network validates the transaction, and any change gets reflected in all copies
- After verification, the nodes are added to the previous set of blocks, thus forming a blockchain
- Transactions are completed securely as new blocks are added to the previous blocks only after validation
Blockchain eliminates the use of centralized hub by providing decentralized database, which reduces cost and eradicates the need for go-betweens. Blockchain serves a platform to transact digital assets securely and efficiently. Inducing the blockchain technology in the stock market will undoubtedly benefit the stock market industry given its incredible features.
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